O'Brien decides not to bid for Eircom

BUSINESSMAN DENIS O’Brien has decided not to table a proposal this week to take control of Eircom, the heavily indebted Irish telecoms group.

A statement released late yesterday evening on his behalf said: “Denis O’Brien has today informed the first-lien committee at Eircom that he will not be proceeding with a proposal for the company. There will be no further comment on this matter.”

It is not clear why Mr O’Brien has decided to walk away from the process.

Concerns have been raised about the rate of decline within Eircom, both in terms of customer numbers and earnings, and whether the company could support even a substantially reduced level of indebtedness.

Mr O’Brien might also have had concerns about the cost of labour at the business and structures around work practices, even though these have changed substantially in the past few years with the agreement of trade unions at the telecoms group.

Mr O’Brien’s pan-Caribbean mobile-phone operation, Digicel, operates flexible work practices and is not heavily unionised, in contrast to Eircom.

Mr O’Brien had previously sought to acquire Eircom, without success, and was widely expected to submit a proposal this week.

Last week, he made contact with the employee share-ownership trust (Esot), which owns 35 per cent of the business. This was seen as a signal that he might seek to have the Esot back his proposal.

His exit from the bidding would appear to leave Eircom’s shareholders, Singapore-based STT and Esot, in pole position to table a proposal that would find favour with the company’s lenders.

Eircom has gross debts of more than €4 billion and has breached its banking covenants with lenders, which have given it a waiver until mid-December.

Eircom’s independent directors recently asked interested parties to submit proposals to take control of the company. They set Friday as the deadline for proposals.

The directors are expected to make a recommendation to the co-ordinating committee of the first-lien lenders, who will have the final say in this matter.

STT’s proposal would involve an equity injection of about €300 million, which would be made available to the company to upgrade its copper network to fibre. The employee Esot is expected to contribute €45 million to €50 million of this sum in equity.

Reports have also suggested that London-based Communications Ventures Partners (CVP) might join the STT-Esot proposal, although this might not happen until after Friday’s deadline.

It is understood CVP could contribute up to €50 million to the STT-Esot offer.

The STT-Esot proposal would involve the first-lien lenders, who are reducing their borrowings in return for a 20 per cent stake.

It is widely expected that the first-lien lenders would take a small haircut on their €2.4 billion in borrowings in return for a stake of about 20 per cent in the business.